WORLD FOREX: US Dollar Gains As Egypt Concerns Stoke Risk Aversion

RebeccaHoward

WELLINGTON (MarketWatch) -- The U.S. dollar gained Friday as Egyptian President Hosni Mubarak's surprising decision to stay in office despite mass protests fueled uncertainty and a bid for safer assets.

The euro was at $1.3587 in New Zealand at 0230 GMT compared with $1.3600 Friday morning in Asia while the U.S. dollar was at Y83.36 compared with Y83.22.

In a defiant televised speech that left political uncertainty simmering in Egypt, Mubarak appeared to reject opposition calls for his ouster after nearly three weeks of antigovernment protests, even as he transferred some powers to Vice President Omar Suleiman.

Immediately following Mubarak's remarks, enraged protesters marched toward the presidential palace, which amplified fears that the combustible situation could take a violent turn.

"The Egypt situation is the risk-averse news of the last few hours. There's no question about that," Westpac Bank strategist Imre Speizer said.

But market reaction to the Egypt news was comparatively subdued. Investors grappled with the lack of clarity about how Egypt--a strong U.S. ally that occupies a strategically sensitive location for oil exports--would cope if Mubarak were forced from power. His refusal to step down has raised the stakes.

HiFX senior trader Stuart Ive said the euro is likely to face further pressure after Mubarak's surprising decision.

"The market is left with a risk aversion scenario. He (Mubarak) hasn't left and there is a clear threat from the people in the street who want him gone now. It leaves a lot of questions," Ive said.

But he added that investors also are concerned again about European sovereign debt issues after the European Central Bank was widely believed to have stepped in and bought Portuguese bonds last night after their yield topped out.

"If you combine Portugal's situation with the unchanged situation in Egypt I wouldn't be surprised to see this slide on the downside (in the euro) continue for the time being," he said.

But Bank of New Zealand Strategist Mike Hollows said that the main driver for the euro is an expectation around the European Central Bank cash rate, as well as broad U.S. dollar sentiment. He said attention would now focus on U.S. data due later in the global day, as well as comments expected later from ECB President Jean-Claude Trichet in Germany.

The Australian dollar also took a slight tumble after Reserve Bank of Australia Gov. Glenn Stevens said the Australian central bank is not contemplating a rate rise right now. The Aussie dollar was at US$1.0002 at 0230 GMT from around US$1.0037 prior to his speech.

"That would certainly be enough to send the Aussie down 30 odd points, which is what has happened this morning," said Ian Fowler, senior corporate dealer with OzForex.

The Australian dollar already was under pressure due to encouraging U.S. labor market data, Fowler said. The number of U.S. workers filing new claims for unemployment benefits fell more than expected last week to the lowest level since July 2008, in the latest sign of improvement in the U.S. economy.

The slide in the Australian dollar is "a combination of people jumping onto the greenback a little bit, gold retreating just a slight bit and the final piece of the puzzle this morning was Mr. Stevens," Fowler said.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.